Defence to consolidate vendors in an effort to save cash

The Department of Defence has flagged its sourcing strategy as a major area of review in its Defence Information and Communications Technology Strategy 2009 report.

According to the report, while the vast majority of the Defence CIO’s ICT spend was external, a strategic management approach had to date not been taken with this spend.

“85 per cent of expenditure is spent on external providers yet sourcing is highly fragmented, and procurement is decentralised and uncoordinated,” the report reads. “Existing contracts focus on inputs rather than end-to-end accountabilities for business outcomes [and] sourcing acts as a bottleneck, hindering the delivery of business outcomes.”

To address the issue Defence said it planed to consolidate the number of vendors from which it sourced in an effort to have more strategic relationships.

Defence’s infrastructure sourcing strategy would revolve around five technology areas, or bundles: distributed computing, centralised processing, terrestrial communications, specialist communications and applications.

“The scope of the ICT sourcing program will deliver new sourcing arrangements that will bundle the delivery of ICT services so that Defence reaps significant cost savings as well as offering the opportunity to free up staff from procurement and governance duties,” the report reads.

Defence also said that while it was a major consumer of ICT goods and services its scale as a consumer was a lever that was currently under-utilised.

To address this, and drive down its ICT costs, Defence will implement a ‘Procurement Centre of Excellence’ with the remit to establish strong common ICT procurement processes and deliver improved outcomes from sourcing activity.

Specific tasks for the centre will include the identification and classification of contract related costs associated with the delivery of ICT services and carrying out a review of service delivery costs and sourcing models against industry and whole-of-government metrics to define the sourcing opportunities within the Defence ICT value chain.

It would also define the technology bundling strategy based on the ICT sourcing principles, overall procurement cost, vendor specialisation and economies of scale and would link the Defence ICT sourcing strategy with whole-of-government initiatives.

“Defence will rationalise the vendor set to establish a manageable set of vendors involving fewer but more strategic partnerships,” the report reads.

While current contract management within Defence ICT was characterised as being focused on inputs, Defence would increasingly focus contract management on the delivery of business outcomes.

“This function will review and improve contracts to ensure they are strongly performance-oriented with enforceable legal clauses. There will be a preference for milestone-based payment models. Further, vendors will be held accountable for delivery of outcomes by establishing risk sharing arrangement where appropriate,” the report reads.

As earlier reported in Computerworld, the report also restates Defence’s goal of saving up to $1.9 billion over the next decade by spending $940 million to develop an improved Defence Information Environment (DIE) to support the armed forces and business reform objectives to 2030.

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